From Marc to Market:
Markets Becalmed Ahead of the Week
Overview: The global capital markets are ending the week on a subdued note as the UK Parliament decision on Saturday is awaited. The weaker Chinese Q3 GDP had little impact outside of China, where stocks fell over 1%. A brief suspension of hostilities by Turkey was sufficient for the US to lift its threatened sanctions. Asia Pacific equities were mostly a little softer, though the Nikkei eked out a small gain, and India's Nifty 50 extended its streak to a sixth advancing session, encouraged by strong earnings and anticipation of more. European and US shares are little changed but softer. Benchmark 10-year bond yields are slightly higher. The dollar is sporting a softer profile though sterling is consolidating after yesterday's wild swings. Oil prices are higher for the third session but are still off a little more than 1% for the week. Gold's small loss is enough to also push it slightly lower for the week.....MUCH MORE.
China's Q3 GDP slowed to 6.0%. It was a little more than expected, and the slowdown of the second-largest economy does not appear to have bottomed. That said, September industrial output and retail sales strengthened sequentially. Estimates suggest that the trade conflict with the US may have shaved 0.5% of the year-over-year pace of activity. Reports indicate the swine herd may be poised for recovery, though the African swine flu appears to have struck other Asian countries. While Chinese officials continue to seem reluctant to provide large-scale stimulus, the PBOC's money market operation this week suggests pre-emptive efforts to head-off a money market squeeze as the late October tax season drains liquidity. Last week the dollar finished near CNY7.0885 and now is near CNY7.0825, slipping for the second consecutive week.
Japan's lowest CPI in a couple of years continues to encourage expectations that the Bank of Japan will take fresh action at its meeting later this month. Headline CPI eased to 0.2% year-over-year in September from 0.3% in August. The core rate, which excludes fresh food, fell to 0.3% from 0.5%. Separately, Japan's Diet approved legislation that requires foreign investors to register if they intend to buy more than 1% of a listed Japanese company, down from 10% previously. This is another expression of economic nationalism that appears increasingly evident. Foreign investors continued to buy Japanese shares last week, and in the first two weeks of October, their purchases are at five-month highs. As the US TIC data showed, Japanese investors are taking advantage of a softer yen and large carry to buy foreign bonds. Last week, they bought more than JPY1 trillion of international bonds, the most since late August.
The dollar has been confined to less than a one yen range this week. Repeated attempts so far to take the greenback above JPY109 have faltered, but the market does not appear to have given up, but given the uncertainty over the UK Parliament's vote tomorrow, it may be reluctant to do so in North America today. There is a $585 mln option at JPY109 that expires today. Another option for JPY108.75 (~$450 mln) that expires today is also in play. The Australian dollar is closing in on its third weekly advance, the longest in six months. Growth in full-time employment is helping it shrug off the impact of the soft Chinese data. RBA Governor Lowe claimed that negative interest rates in Australia were "extraordinarily unlikely," which reinforces our sense that negative interest rates are associated with central bank decisions in current account surplus areas and are not merely the result of demographic factors, as some have argued. The Aussie is building on yesterday's gains to reach a one-month high today near $0.6840 and is poised to close the week above a three-month downtrend found around $0.6790.
With the UK-EU agreement, all attention shifts to the UK Parliament, which will sit tomorrow and consider the plan. In many ways, the agreement Johnson struck will make for a harder Brexit and one that arguably estranges Northern Ireland. There would be new trade barriers and additional border checks. The deal also rules out a new customs union and appears to block a close relationship with the Single Market. Without an activist government in the UK, this Brexit will entail extensive deregulation (i.e., environmental, worker, and consumer protections will be eroded)...